The Chinese government is indicating that it can no longer tolerate the intense competition within the nation's electric vehicle sector.
China's industrial policies have successfully transformed the market towards electric vehicles in what stands as the largest auto market globally.
However, these developments have led to an oversupply of manufacturers that cannot all remain viable.
As headline sales figures reach record levels, concerns regarding excess capacity and destructive price wars are rising.
Leading automaker BYD announced this week that its sales surged by 31 percent during the first half of the year, totaling 2.1 million vehicles.
Almost half of these were fully electric vehicles, and the remainder were plug-in hybrids, as disclosed in a filing to the Hong Kong Stock Exchange. The company discontinued internal combustion engine vehicles in 2022.
BYD faced subtle criticism in late May when it initiated a new set of price reductions, prompting several competitors to do the same. The chairman of Great Wall Motors cautioned that the industry could be jeopardized if it continues along its current path.
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The government aims to address what is referred to as “involution” — a term first used to describe the competitive pressures faced by youth in China, now applicable to businesses and industries engaged in futile competition that yields no benefits.
Criticism has been directed at BYD for leveraging its dominant market position in ways that some perceive as unfair, instigating price wars that have inflicted losses throughout the industry, according to Murthy Grandhi, a financial risk analyst at GlobalData based in India.
As the price war enters its fourth year, Chinese car manufacturers are seeking profits in international markets. BYD's foreign sales more than doubled to 464,000 units in the first half of this year. Concerned policymakers in the U.S. and EU have implemented tariffs on electric vehicles made in China, asserting that subsidies have granted them an unfair edge.
The latest wave of anxiety began when BYD reduced the prices of over 20 models on May 23.
On the same day, Wei Jianjun, the chairman of Great Wall Motors, expressed his doubts about the “healthy development” of the electric vehicle sector, drawing parallels to Evergrande, the Chinese property giant whose collapse plunged the entire industry into a downturn from which it has still not recovered.
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Many automakers had prolonged payments by compensating suppliers with short-term debt—commitments to pay them back within a set timeframe—rather than immediate cash. This same approach was adopted by real estate developers. It was effective until it wasn't. Following Evergrande's default on its loans, suppliers were left with worthless promises of payment.